mck@ratex.UUCP (Daniel Kian Mc Kiernan) (03/22/85)
Mr Torek finds my EMPIRICAL arguments, that concentrations of economic
power (on the order of those which currently exist) could not arise in a
Free Economy, to be 'insufficient'. It's hard to see what might satisfy
Torek by way of an empirical proof, short of instituting a Free Economy.
Mr Torek asks about the case of natural monopoly, suggesting that
perhaps I find it unreal or unproblematic. Indeed, I do. For a natural
monopoly to present a problem, it would have to have exclusive ability to
produce a vital product for which there are no feasibile substitutes.
As Torek tells us that he is an intermediate student of economics, I
have no qualms in recommending to him *The Political Economy of Monopoly*
by (the recently deceased) Fritz Machlup (who has probably been mentioned
in Torek's earlier readings).
Mr Torek seeks to save Socialism from the onslaught of von Mises by
defining Socialism as a system in which workers own the means of
production. I regard this definition as trivializing; surely we wish to
draw a distinction between Socialism and Capitalism! I would hold that a
system is Socialist if, WITHIN that system, resources are allocated by
administrative rather than market processes. Mr Torek is quite right
(even if we impose my definition on his discussion) to note that voluntary
Socialist systems (actually advocated by Libertarian Karl Hess) are
economically possible within a Free Economy. However, these systems are
only feasible to the extent that there is a meaningful external price
system to guide judgements (hence, when Socialist states adjust prices,
they do so by bringing them more in accord with those of more Capitalistic
states). As an administrative system (whether called 'corporation' or
"People's Republic") grows relative to the external market, it supplants
the price system with administrative judgements, which in turn NEED
external market prices to guide those judgments. So Mr Torek is right
that Socialist systems are feasible -- if they are microsystems within a
market.
Mr Torek again brings up the hypothetical case of internalizing
externalities by taxation policies. As I pointed out earlier, such models
are only feasible when the relevant good is not a bad for one of those
taxed; it would be nice of Torek to present us with a real-life example,
but his point does not depend on the existence of such a case. Rather,
Mr Torek argues that 'A moral/political principle is a generalization; it
is wrong if it is wrong in even one case'. True enough, and those
Libertarians (like Henry Hazlitt) who attempt to found Libertarianism on
Utilitarianism (or some such), are open to such an attack. I, however, do
NOT base my Libertarianism on such a foundation. Why then do I present
economic analysis? Because many anti-Libertarians do attempt to found
their systems on such bases, and the point that Torek notes on exceptions
also applies to anti-Libertarian systems! I generally do not involve
myself in non-economic arguments because of time constraints.
Mr Torek wishes to save his claim that education produces
externalities by noting that education makes possible invention. If
invention generated externalities, this would provide an argument that
government can promote performance by SUBSIDIZING INVENTION (not education,
for it would not be education which generated the externality). However,
copyrights (or analogues thereof) capture the externalities which might
otherwise be generated.
Mr Torek claims that my suggested rational reason for valuing present
consumption over future consumption is 'extrinsic'. We may be using
incompatible semantic paradigms here, but if I understand Mr Torek
correctly, he is saying that death (and other diminishments of capacity)
are unnecessary and can therefore be excluded from rational calculation.
This is awfully silly, hence my question of semantics.
Back later,
DKMcKorb@whuxl.UUCP (SEVENER) (03/23/85)
> From the illustrious Danny McK: > Mr Torek asks about the case of natural monopoly, suggesting that > perhaps I find it unreal or unproblematic. Indeed, I do. For a natural > monopoly to present a problem, it would have to have exclusive ability to > produce a vital product for which there are no feasibile substitutes. Is this really true? And how much does this agree with the real world? "A rose is a rose and not a daffodil" seems a self-evident proposition. While both are flowers there is no way that a daffodil can ever totally substitute for a rose in all of its qualities and characteristics. Thus the possibility of substitution is always limited in some sense. Even in very fundamental products. Take energy for example. Much of our current energy needs are satisfied by petroleum products. These needs could be satisfied by other energy sources: solar energy, geothermal energy whatever. But suppose we had unlimited potential solar energy or any other kind of energy for that matter. Does that mean there could be an immediate and simple substitution of another energy supply for oil? Certainly not. All the automobiles, trucks and various motor vehicles are designed to run on oil or a similar combustible product. They are simply not adapted to run on solar energy or some other type of energy source. Well, that's simple you say: simply use the energy from the other source to produce a combustible product. This seems simple but it really is not: in fact we already have in place a network of oil refineries to process raw petroleum and put it into a form that can be used by cars. To create a similar product using another energy source would require building new refineries to make the gasahol, methane or whatever product is envisioned to replace ordinary gasoline for cars. And then the freeing of one constraint (namely energy) may create other constraints: perhaps the materials that would be used to create a gasoline substitute would turn out to be in short supply when used in such a massive way. This argument simply points out the types of real world constraints to subsitutions even when considered in the extreme case. In reality of course such an unlimited potential energy supply would not be so simple either. One would need to build ways to tap the energy supply, the energy supply itself would never be unlimited but would actually be limited, and tapping of the energy supply might have other unforeseen consequences that would involve additional costs. The point is that in the real world *every* product involves some degree of natural monopoly because it cannot be totally replaced by another product. And every market involves some control of the price by the producer even if such control is so miniscule that it becomes insignificant contrasted with all the other producers. The smooth curves of supply and demand drawn by present-day economists create the impression that actual movements of supply and demand are really as smooth. This may not be true, just as physicists found out some years ago that in fact changes in physical energy states in the atom actually involve discrete jumps. If I get fired I get a discrete jump downward in income. If I get a new job, I may also get a discrete jump upward in income. I hate to say this, but I really think some current sociologists studying labor markets at least are doing a much better job of describing the real world than economists relying on abstract theories which they then cram onto the data and the facts. But I have not read current economic journals in a long time so this may be an unfair assessment. "A rose is a rose is a daffodil" saith the economist tim sevener whuxl!orb